The National Company Law Tribunal, Kochi Bench, in proceedings arising from the CIRP of Mangomeadows Agriculture Pleasure Land Pvt. Ltd., imposed a compensatory cost of Rs. 50,000 on the GST Department for conducting a search and seizure operation on the premises of the corporate debtor during the subsistence of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016. The Tribunal held that the GST Department's actions were in clear violation of the moratorium provisions.
Background
The corporate debtor had been admitted into the Corporate Insolvency Resolution Process on 25 January 2023, and moratorium under Section 14 of the IBC was imposed from that date. On 10 March 2023, officers of the GST Department conducted a raid on the premises of the corporate debtor and seized account documents and records, despite the moratorium being in effect.
The Resolution Professional filed an application before the NCLT seeking a direction to the GST Department to return the seized documents and to restrain the department from taking any further coercive action against the corporate debtor during the CIRP period. The RP contended that the search and seizure was a clear violation of Section 14 of the IBC, which prohibits the continuation or institution of proceedings against the corporate debtor during the moratorium period.
The GST Department had also issued summons to the Resolution Professional, directing him to appear before the department for questioning — an action that the RP argued further violated the statutory protections available to the corporate debtor during CIRP.
Key Holdings
The NCLT Kochi Bench held as follows:
Moratorium violation established: The search and seizure conducted by the GST Department on 10 March 2023 was in violation of the moratorium imposed under Section 14 of the IBC. The Tribunal noted that the moratorium applies to all proceedings, including actions by government and revenue authorities.
Section 238 overriding effect: The provisions of the IBC have overriding effect under Section 238 over other laws, including the Central Goods and Services Tax Act, 2017. Revenue authorities are bound by the moratorium once CIRP commences.
Return of seized documents: The GST Department was directed to return all documents and records seized during the raid to the Resolution Professional forthwith, as the seizure was without legal authority during the moratorium period.
Compensatory cost: The Tribunal imposed a compensatory cost of Rs. 50,000 on the GST Department, payable to the Resolution Professional towards the CIRP cost, as a measure to deter future violations by revenue authorities.
Implications for Practitioners
This order reinforces the settled position that the IBC moratorium under Section 14 creates an absolute prohibition on coercive action against the corporate debtor, extending to government and revenue authorities. Insolvency practitioners should note that the Tribunal was willing to impose costs on a government department, signalling a firm approach to moratorium enforcement.
For Resolution Professionals, this order provides a clear template for seeking relief when revenue authorities violate the moratorium. Practitioners should proactively communicate the moratorium order to all relevant government departments at the commencement of CIRP, referencing Circular No. 134/04/2020-GST which acknowledges the bar on coercive action during insolvency proceedings.
Tax practitioners advising government departments should ensure that their clients conduct moratorium checks before initiating any enforcement action against entities that may be undergoing CIRP, as the consequences now include monetary penalties.